Bloomberg News

International Demand for U.S. Assets Rises on Europe

October 16, 2012

International purchases of U.S. financial assets rose in August as investors sought shelter from the debt crisis in Europe, boosted by purchases from France, the U.K. and China.

Net buying of long-term equities, notes and bonds totaled $90 billion during the month, up from net purchases of $67.2 billion in July, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $48 billion of long-term assets, according to the median estimate.

“This report underscores the healthy demand for U.S. Treasury assets globally as the European uncertainty continues to weigh on investors’ sentiment,” Millan Mulraine, senior U.S. strategist for TD Securities in New York, said after the report was released.

U.S. assets have maintained their attraction as European leaders struggle to resolve differences on renewed aid for Greece and as Spain holds out on tapping a bailout. The International Monetary Fund’s decision this month to cut its forecast for world economic growth to 3.3 percent this year and 3.6 percent for 2013 may further increase the lure of U.S. assets as a safe-haven investment.

Short Term

Including short-term securities such as stock swaps, foreigners bought a net $91.4 billion in August, compared with net purchases of $74 billion the previous month.

Estimates of foreign purchases of long-term U.S. assets in August ranged from net buying of $40 billion to $75 billion, according to five economists surveyed by Bloomberg before the report.

China remained the biggest foreign owner of U.S. Treasuries in August after its holdings rose $4.3 billion to $1.15 trillion, according to the Treasury. Hong Kong, counted separately from China, raised its holdings of Treasuries by $2.9 billion to $139.6 billion.

France increased its holdings of Treasuries by 6.4 percent to $68.1 billion, and the U.K. raised its holdings by 9.4 percent to $153.6.

Switzerland’s holdings of Treasuries rose to $202.2 billion from $190.1 billion, while Ireland rose 4.5 percent to $92.2 billion.

EU Leaders

European Union leaders convene for an Oct. 18-19 summit in Brussels after a weekend in which international finance chiefs expressed some optimism that a firewall is in place to contain the euro’s turmoil and urged further action to quell the main threat to global growth.

Treasuries declined a second day as Germany signaled it may be open to a bailout of Spain, boosting speculation the region’s sovereign-debt crisis is being contained and reducing refuge demand for U.S. government debt. The benchmark 10-year yield climbed five basis points, or 0.05 percentage point, to 1.71 percent at 12:08 p.m. today in New York, according to Bloomberg Bond Trader prices.

U.S. Federal Reserve policy makers last month increased accommodation to boost an economy that central bankers said still faces “significant downside risks.” Fed officials announced a third round of asset purchases, agreeing to buy $40 billion of mortgage-backed bonds each month. They also extended the horizon for record-low interest rates through at least the middle of 2015.

Sharp Rise

“The sharp rise in demand from the U.K. and the Caribbean -- good proxies for hedge fund buying -- does suggest some positioning ahead of the Fed’s QE3 announcement,” said Mulraine of TD Securities.

The U.S. budget shortfall registered $1.09 trillion in fiscal 2012, down from $1.3 trillion in 2011, according to Treasury Department data issued Oct. 12 in Washington.

Congress is pushing the country closer to the “fiscal cliff” -- the $607 billion of automatic spending reductions and tax increases that will be triggered unless a government compromise is reached this year.

At the same time the world’s largest economy shows signs of improvement as unemployment last month dropped to the lowest level since January 2009.

The Treasury Department’s data capture international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies.

The Treasury said in February it was shifting from a transaction-based survey to a custodial survey to keep track of foreigners’ holdings. As a result, month-to-month comparisons are not valid.

To contact the reporter on this story: Meera Louis in Washington at mlouis1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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